In the past three days, I have been following Doris Dumlao’s three-part story on Negros-based Victorias Milling Corporation (VMC), the largest sugar company in the Philippines.
This was the sugar company started in 1919 by Don Miguel Ossorio. In the decades that followed, VMC pursued expansion, going into non-core businesses such as engineering products and services, food processing, organic fertilizers, shipping, management and consultancy, real estate, and agribusiness. Most of these were financed by borrowing funds from banks.
But then came the 1990s and there was a slump in sugar prices. The Asian currency crisis wreaked havoc on the economy. Add to that a case of irresponsible management which plundered VMC and the company soon found itself in hot water. In July 1997, VMC defaulted on its debts.
Dumlao writes:
“VMC, erstwhile a prime credit, saw its debts balloon from P5.2 billion, when it first defaulted, to nearly P8 billion due to delays in the implementation of the rehabilitation plan, which was amended in late 2000 after a futile attempt to find a new investor.
“Among VMC’s biggest creditors were PNB, Metropolitan Bank and Trust Co., Land Bank of the Philippines, East West Bank and Equitable PCI Bank.”
Because the big banks were exposed, the Central Bank watched VMC closely. VMC and the banks struck a deal to restructure the debts and converted some of the debts to equity. A management committee was formed to run VMC.
Today, VMC is holding its head high, having posted profits three years in a row. How did they do it? Here are some steps VMC took:
1. Use high-yielding sugar varieties to enable extraction of more sugar.
2. Audit stocks and tighten inventory control.
3. Eliminate cash burns such as VMC’s own 200-km railroad system which enticed thieves to steal sugar canes.
4. Upgrade facilities to improve output.
5. Welcome a new investor in—in VMC’s case, Lucio Tan in 2003.
So it can be done. With help from creditor banks and good management, a losing business can make it as long as it can fill a market need.
